Alliant Energy - Earnings Call - Q3 2017
November 3, 2017
Transcript
Speaker 0
Thank you for holding, ladies and gentlemen, and welcome to Alliant Energy's Third Quarter twenty seventeen Earnings Conference Call. At this time, all lines are in a listen only mode. Today's conference is being recorded. And I would now turn the call over to your host, Susan Gill, Manager of Investor Relations at Alliant Energy.
Speaker 1
Good morning. I would like to thank all of you on the call and the webcast for joining us today. We appreciate your participation. With me here today are Pat Campling, Chairman, President and Chief Executive Officer and Robert Durian, Vice President, CFO and Treasurer as well as other members of the senior management team. Following prepared remarks by Pat and Robert, we will have time to take questions from the investment community.
We issued a news release last night announcing Alliant Energy's third quarter and year to date financial results. We updated our 2017 earnings guidance range and announced 2018 earnings guidance and common stock dividend target. This release as well as supplemental slides that will be referenced during today's call are available on the Investor page of our website at www.alliantenergy.com. Before we begin, I need to remind you that the remarks we make on this call and our answers to your questions include forward looking statements. These forward looking statements are subject to risks that could cause actual results to be materially different.
Those risks include, among others, matters discussed in Alliant Energy's press release issued last night and in our filings with the Securities and Exchange Commission. We disclaim any obligation to update these forward looking statements. In addition, this presentation contains non GAAP financial measures. The reconciliation between the non GAAP and GAAP measures are provided in our investor presentation, which are available on our website at www.alliantenergy.com. At this point, I'll turn the call over to
Speaker 2
Pat. Thanks, Sue. Good morning, and thank you for joining us today. Yesterday, we issued a press release, which included third quarter and year to date financial results, updated our 2017 earnings guidance range and announced our 2018 earnings guidance and common stock dividend target. It also provided our annual capital expenditure plan through 2021 and our current estimated total CapEx for 2022 through 2026.
So for the quarter, I am pleased to report that except for mild temperatures, our results were according to plan. Like many others in the region, we experienced a very cool summer, which followed a very warm winter. This negatively impacted our year to date earnings by $06 per share. As in the past, this is the quarter that we update this year's earnings guidance to include the temperature impacts for the first nine months. So the new guidance is now has a midpoint of $1.93 per share, which is $06 per share lower than the midpoint of earnings guidance provided for 2017 last November.
Robert will provide details for the quarter later in the call. Let me now focus on 2018, which you will be pleased with. We announced a 6% increase in our targeted 2018 common dividend to $1.34 per share. We also announced a 6% increase of earnings guidance with a midpoint of $2.11 per share. As shown on Slide two, the 6% increase is based on temperature normalized earnings for 2017 of $1.99 per share and not the revised 2017 guidance that includes this year's negative temperature impact.
I also want to reaffirm that our long term earnings growth objective remains at 5% to 7% and our dividend payout ratio remains at 60% to 70% of consolidated earnings. We also issued our twenty seventeen to twenty twenty one capital expenditure plan totaling $6,900,000,000 as shown on Slide three. In addition, we provided a walk from the previous plan to our current plan on Slide four. As you can see, the CapEx increase is driven mostly by the additional 300 megawatts of wind that we've been discussing with you. This increase was partially offset by lower maintenance expenditures in generation.
Our updated capital expenditure plan includes 1,200 megawatts of wind energy. Under current tax law, we expect all of the wind projects to qualify for the 100% federal production tax credits. Also, our CapEx plan includes additional needs beyond 2020, which we anticipate would be a combination of grid enhancements, solar and natural gas generation. And as energy technologies evolve, we will continue to evaluate our investment plans to best serve the needs of our customers. Approximately one half of our $11,900,000,000 ten year capital plan is for enhancing our electric and gas distribution systems, including smart meter deployment in Iowa.
Our customers and communities expect us to not only maintain a safe and highly reliable system, but now expect us to adapt to a system that is more interactive and dynamic. We continue to make exciting progress on the development of our wind expansion. Our existing utility wind portfolio includes owned wind farms of five sixty eight megawatts plus approximately 600 megawatts of renewable purchase power agreements. Our plans to add up to 1,200 megawatts of new wind generation will more than double renewable energy for our customers. We forecast that almost 30% of Alliance Energy's rated electric capacity would be from renewable sources by 2024.
Let me now share with you some of the key activities underway to expand our energy resources. In August, we filed a new advanced rate making principle application or RPU with the Iowa Utilities Board to request approval for up to 500 megawatts of additional utility owned wind. In the RPU, we requested the same return on equity of 11% that was approved in the last proceeding. We also requested a cost cap of $17.80 dollars per kilowatt, including AFUDC and transmission, which is lower than the cost cap approved in the last proceeding. We expect approval in the first quarter of twenty eighteen.
And construction will soon begin at our Upland Prairie wind farm. We are also making good progress on acquiring additional wind farms, which is all part of our 1,000 megawatt wind expansion in Iowa. Our forecast assumes that 300 megawatts will be in service in 2019, the the remaining 700 megawatts of wind will be placed in service in 2020. Recently, signed an agreement with Invenergy to purchase a stake in the Ford Wind Energy Center along with WPS and MG and E. We will file a joint application with the PSCW for the purchase of this Wisconsin wind farm before year end.
If approved, customers are expected to realize a savings from the transfer of this wind farm for an existing purchase power agreement to utility owned. We anticipate closing in the 2018 subject to regulatory approvals. WPL's share of the facility will be 55 megawatts with a purchase price of approximately $74,000,000 This purchase is included in the capital expenditure plan we released last evening, which calls for a total of 200 megawatts of additional wind investment for WP and L. We are also completing our evaluations from the request proposal for additional wind energy options to benefit our Wisconsin customers. We anticipate filing a request for additional wind investments with the Public Services Commission before year end.
We are very fortunate that we serve customers in a region where wind energy is economic and abundant, and I must thank our support of rural communities and farm families that are great partners in fueling our future. We could not do this without them. Moving on to our gas generation investments. We are in the early stages by making good progress with Wisconsin's West Riverside Energy Center. We expect that West Riverside will be in service by early twenty twenty.
Its sapwood will be approximately seven thirty megawatts and our share of the total anticipated project cost is approximately $640,000,000 including AFUDC and transmission. The three electric cooperatives that signed letters of intent to acquire approximately 65 megawatts of West Riverside have received PSCW approval. We expect FERC approval of the wholesale supply agreement within the coming months. These co ops have been WPL wholesale customers for decades, and we are delighted that they will be our partners in West Riverside. Solar generation is the newest addition to our energy mix.
We are excited about our collaboration on two solar projects with the City of Dubuque, which are now producing energy for our customers. These projects are in addition to our three other existing solar facilities located at our Rock River Campus, our Learning Laboratory at our Madison headquarters and the Indian Creek Nature Center in Cedar Rapids, Iowa. Solar investments such as these will help meet our customers' growing interest in cleaner and distributed forms of energy. We are also planning to install solar at West Riverside Energy Center in Southern Wisconsin and Marshalltown Generating Station in Central Iowa. Before I wrap up, I would like to briefly address the tax reform bill released in Congress yesterday.
It's too early for us to know the potential impacts of tax reform on our company and customers, especially given that changes are expected in the coming weeks. We will remain involved in the process and will continue to advocate for our customers and for the economic growth in the communities we are privileged to serve. I would also like to take this opportunity to thank our dedicated employees for their storm recovery assistance, not only at home, but also in Florida. I'm extremely proud of their quick response and great customer care during challenging restoration efforts, all while keeping safety top of mind. And with Veterans Day just a week away, I would like to take a moment and pay tribute to the approximately 400 proud veterans that work here at Alliance Energy and to those veterans that are on the call with us today.
I also want to extend my thanks and appreciation to all the military families for everything they do while their loved ones are away from home. Let me summarize my key focus areas for 2017 and 2018. Our dedicated employees delivered solid third quarter results and will deliver on full year financial and operating objectives. Our plan continues to provide a 5% to 7% earnings growth and 60% to 70% common dividend payout target. We expect to complete our large construction projects on time and at or below budget and in a very safe manner.
We will continue working with our regulators, consumer advocates, environmental groups, neighboring utilities and customers in a collaborative manner. Continued focus on serving our customers and being good partners in our communities, while reshaping the organization to be leaner and faster. And we will continue to manage the company to strike a balance between capital investment, operational and financial discipline and cost impact to customers. Thank you for your interest in Alliance Energy. And I'll now turn the call over to Robert.
Speaker 3
Good morning, everyone. We released third quarter twenty seventeen earnings last night with our GAAP earnings of $0.73 per share and our non GAAP earnings of $0.75 per share. The difference is a $02 per share nonrecurring charge from write downs of regulatory assets due to the recent proposed settlement reached with the major intervening parties in IPL's retail electric rate review. Our non GAAP earnings of $0.75 per share were $05 lower than non GAAP earnings in the third quarter of twenty sixteen, primarily due to the impacts on electric sales of cooler summer temperatures in our service territory compared to last year. IPL interim retail electric base rates and new WPL retail electric and gas base rates continue to contribute to higher earnings in the third quarter of twenty seventeen.
However, as expected, these increased earnings were offset by the impacts of higher depreciation expense from rate based additions, including the Marshalltown facility, AFUDC earned on Marshalltown in 2016 and higher energy efficiency cost recovery amortizations at WPL. A summary of the quarter over quarter earnings drivers can be found on Slides five, six and seven. Turning to our updated 2017 earnings guidance. Our non GAAP temperature normalized earnings generated through the first three quarters of this year have been consistent with our original earnings guidance, allowing us to narrow the range. The updated 2017 earnings guidance range is $1.89 to $1.97 per share.
The change to the midpoint of our updated earnings guidance is due to the $06 of losses from the impact on electric and gas sales of the much milder temperatures in our service territory during the first three quarters of twenty seventeen. Excluding the impacts of these much milder temperatures, we continue to see modest sales growth in our service territories, driven by increased sales to our commercial and industrial segments. Through the first three quarters of this year, temperature normalized sales, excluding the impact of leap year, increased approximately 05%. Now let's review our consolidated 2018 earnings guidance range of $2.04 to $2.18 per share. A walk from the midpoint of the 2017 non GAAP temperature normalized EPS range to the midpoint of the 2018 earnings guidance range as shown on Slide eight.
The key drivers of the 6% growth in EPS are infrastructure investments in our core utility business, reflected in WPL's 2018 approved electric and gas retail rates and IPL's final electric retail rates as proposed in the settlement currently under review by the Iowa Utilities Board. IPL's interim rates will remain in effect until the IUB approves final rates by issuing a written decision expected sometime in the first quarter of twenty eighteen. Also, IPL plans to file a retail gas rate review next year to recover investments in its gas distribution system since its last gas rate review filed in 2012. We are forecasting IPL's interim gas base rates will go into effect in the second quarter of twenty eighteen. The 2018 guidance range assumes normal temperatures and retail electric sales growth of approximately 1% when compared to temperature normalized 2017 sales.
Similar to this year's increase in sales, we expect most of the electric sales growth for next year to come from commercial and industrial classes. Slide nine has been provided to assist you in modeling the effective tax rates for IPL, WPL and AEC, including the impact of the tax benefit writers for 2017 and 2018. We estimate a consolidated effective tax rate of 15% for 2017 and twenty four percent for 2018. This 9% year over year increase is primarily related to changes in tax credits associated with IPL's tax benefit writers. Please note that the tax benefit writers have no impact on annual earnings.
Also to assist you in modeling, we would like to provide you with information concerning the assumed MISO ROEs embedded in forecasted ATC investment earnings. The 2017 earnings forecast assumes an ROE of 10.82% through the end of this year. The 2018 earnings forecast assumes an ROE of 10.2%. We currently expect FERC will resolve the second MISO ROE complaint sometime in the first half of twenty eighteen. Finally, we have forecasted a flat O and M trend from 2017 to 2018 as we continue to focus on cost controls for the benefit of our customers.
The forecasted flat O and M trend excludes the fluctuations we expect from energy efficiency cost recovery amortizations, which were included in WPL's most recent electric and gas rate order. Turning to our financing plans. Our current forecast continues to anticipate strong cash flows from the earnings generated by the business and extension of bonus depreciation deductions through 2019. Alliant Energy currently does not expect to make any significant federal income tax payments through 2021, with additional tax payment reductions expected after 2021 due to the tax credits from wind investments included in our plan. This forecast is based on current federal net operating losses and credit carry forward positions as well as future amounts of bonus depreciation expected to be taken on federal income tax returns over the next few years.
There have been no material changes to our 2017 financing plan. In August, we entered into a new five year $1,000,000,000 master credit facility. And in October, we completed the issuance of $300,000,000 of long term debt at WPL. Our 2017 plan continues to assume we will issue up to $250,000,000 of long term debt at IPL later this year. Our 2018 financing plan assumes we will issue long term debt of up to $700,000,000 at IPO, which includes refinancing $350,000,000 of long term debt maturing in 2018.
We also plan to issue up to $1,000,000,000 of debt at Align Energy Finance, which includes refinancing $595,000,000 of term loans maturing next year. Finally, our plan assumes we will issue up to $200,000,000 of new common equity in 2018 through a combination of an ATM program and our shareowner direct program. The financing plan will allow us to maintain the capital structures at IPL and WPL included in the most recent retail rate decision. We may adjust these financing plans as deemed prudent if market conditions warrant and as our external financing needs continue to be reassessed. Finally, for our regulatory schedule.
We have several current and planned regulatory dockets of note for 2017 and 2018, which we have summarized on Slide 10. For IPL, we await a decision concerning the retail electric base rate review filed in April. We anticipate an oral decision from the IUB before the end of this year and a written decision early in 2018. Also, we expect a decision from the Iowa Utilities Board concerning the advanced rate making principles for the second 500 megawatt wind investment for our Iowa customers by the end of the first quarter of next year. For WPL, we plan to submit a retail electric and gas rate review filing for test years 2019 and 2020 next year.
The rate filing will seek recovery of the West Riverside gas facility currently under construction. We very much appreciate your continued support of our company and look forward to meeting with many of you at the EEI Finance Conference next week. For your convenience, we have already posted on our website the EEI investor presentation, which details a separate IPL and WPL updated capital expenditures through 2021 as well as updated rate base and construction work in progress estimates. At this time, I'll turn the call back over to the operator to facilitate the question and answer session.
Speaker 0
Thank you, Mr. Durian. At this time, the company will open the call to questions from members of the investment community. Alliance Energy's management will take as many questions as they can within the one hour time frame for this morning's call. And we'll take our first question from Nicholas Campanella with Merrill Lynch.
Speaker 4
Hey, good morning, team. Congrats on the update.
Speaker 1
Great morning. Good morning, Nick. Hey,
Speaker 4
I was just curious, given the 2018 guidance, what earned ROE does that reflect that your base electric business is for like for WPL and IPL respectively?
Speaker 3
Yes, this is Robert. Nick, it will be close to our authorized returns. They're both roughly in that 10% range.
Speaker 4
Got it. And then, I apologize if you touched on it already, but the wind expansion proposal, it seems that you're past the settlement deadline. Is there still an ability to settle prior to the hearing? Or do you see it playing out fully?
Speaker 2
At this point, we see it playing out fully. We're still, of course, having active dialogue with all the parties. But at this point, we see it being fully litigated. So we'll expect a decision in early twenty eighteen.
Speaker 4
Got it. And then just real quick last question on financing. I think you said $200,000,000 of equity in 2018. Is there any way
Speaker 5
that we should kind of
Speaker 4
be thinking about your forward needs kind of through your forecast period through 2021?
Speaker 3
Yes. This is Robert again, Nick. The way I would look at it is we're trying to maintain the capital structures approved or included in our most recent rate reviews. And so given the heightened CapEx that we see in 2018 and 2019, you should expect some modest level of common equity there.
Speaker 4
All right. Wonderful. See you guys at EEI.
Speaker 2
Okay. See you, Sohgi. Bye bye.
Speaker 0
We'll go to our next question from Ashar Khan with Verition.
Speaker 6
Hi, good morning.
Speaker 1
Good morning.
Speaker 6
Pat, can I ask you the 2020 rate base is a huge move up based on the slides that you provided in the EI deck? Can you just remind us in terms of rate activity, will there be new rate cases in effect to so you would be earning on that higher rate base, which steps up significantly from 2019 to 2020? Could you just remind us on the rate case timeframe in the Iowa and Wisconsin jurisdictions if you can?
Speaker 3
Yes, Shar, this is Robert. Assume Yes, you're pointing to the slides that we posted for the finance conference. And as you will note, the IPL specifically increased about $900,000,000 from 2019 to 2020. And a lot of that's the wind expansion that we're proposing to put into service in early twenty twenty. And so yes, that would require us to go in for a rate review with a test year 2019 rate review at this point in time.
And so assuming we cannot get to some type of settlement agreement before then, that's what our current plan assumes. And then if you turn over to the WPL increase, you see about a $500,000,000 increase from 2019 to 2020 and lot of that is based on the West Riverside plant that we're currently expecting to put into service late in 2019 and early twenty twenty as well as some modest levels of wind on the WPL side too. And we expect to go in for a rate review or file for a rate review sometime most likely in the 2018 for that 2019 and 2020 test period.
Speaker 6
Okay. So can we assume that for the if you add the two rate basis together, if I'm right, 10,400,000,000.0 or so. So can we assume based on rate activity that we should be earning pretty much equal to our allowed ROE in that year?
Speaker 3
I think that's a fair assumption, yes.
Speaker 6
And then on to that, we can add the AFUDC, right? The AFUDC is separate, right, if I understand the way you do it, correct?
Speaker 3
You are correct.
Speaker 6
Okay. And then just going back to your comments, you said that equity is only required in 2018 and 2019 because then the CapEx needs go down in 2020, right, and you get the rate increases. Is that fair? So it's really these two years as we go to the 2020 timeframe. Would that be fair?
Speaker 2
So we only really guided to 2018 equity needs. We haven't guided you yet on 2019, but it is fair to say in the years with extensive CapEx, in order to maintain our equity ratios at the utilities, historically, we've been needed to issue some common equity for those. But you're absolutely right. As you see the CapEx starting to decline, the need for equity would definitely decline with that as well.
Speaker 6
Okay, okay. So Pat, based on this forecast, it seems like you can easily be on the high end of your growth rate, especially as you approach 2020. Am I missing something?
Speaker 2
I knew you were going to say that. Robert and I would really like to get people to really just focus on the midpoint. We've been very consistent on our 5% to 7% growth targets. And we would prefer that everybody just kind of guide to the middle, because that's where we've historically been and that's what we're historically planning to. But I appreciate your enthusiasm in the organization.
Speaker 6
Okay. Thank you.
Speaker 0
And we'll take our next question from Angie Storozynski with Macquarie.
Speaker 7
Thank you. I know it's a bit early to for you to actually gauge how the proposed tax reform is going to impact your wind CapEx. But give us a sense for your projects, especially the ones that would start a version in 2020, how would they fare under the change safe harbor provision if you needed to demonstrate the continuous construction? And also, if there were to be a change in the PTC, how would that change the economics of these projects of the ones actually already announced and the ones that you might be pursuing in the future? Thank you.
Speaker 2
Sure, Angie. No, thanks for the question. And you've opened the question up very appropriately. It's really too early to understand all this. As you understand, the tax reform was issued yesterday.
That's what we consider the first phase of the debate. We'll be very involved not only in the process and the discussions, but advocating on behalf of our customers. And we know what was issued yesterday is going to change. So it's really too early for us to speculate exactly how this is going to impact our current construction program. But give you my word that we'll be very active in the debate and the discussion on all of these very important matters.
And as soon as we have more clarity, we'll be definitely willing to share that with the investment community.
Speaker 7
I understand. But is there something you could do, for instance, before the end of this year, I don't know, to hedge yourself against that construction progress requirement? To be honest, I have no idea what it would entail. I mean, I don't know any type of construction work on the sites that are cited for the future wind farms?
Speaker 2
Angie, I can guarantee that we're looking at all of that right now. And when we have more clarity on that, we'll definitely share it with you. But that's something that we're actively looking at right now.
Speaker 7
Okay. Thank you.
Speaker 2
Thanks, Randy. And we'll go
Speaker 0
to our next question from Greg Reese with Millennium.
Speaker 5
Hey, guys. Thanks for the update on the CapEx.
Speaker 2
No problem, Greg.
Speaker 5
Just a quick question. I know you guys said you're targeting the authorized equity layers of the utilities. Can you tell us kind of what the plan is for the consolidated entity from kind of like a debt to I guess an equity to cap perspective?
Speaker 3
Sure, Greg. This is Robert. I would think of it in the context that we're trying to maintain the current credit ratings we have at the consolidated level. And so right now, I think we're in that probably 40% to 45% equity percentage for the consolidated group. And I'd say we're going to stay pretty consistent with that.
Speaker 5
Great. Thanks a lot.
Speaker 0
And Ms. Gill, there are no further questions at this time.
Speaker 1
With no more questions, this concludes our call. A replay will be available through November 1037, at (888) 203-1112 for U. S. And Canada or (719) 457-0820 for international. Callers should reference conference ID 400000175543 and the PIN of nine thousand five hundred seventy eight.
In addition, an archive of the conference call and a script of the prepared remarks made on the call will be available on the Investors section of the company's website later today. We thank you for your continued support of Alliant Energy, and feel free to contact me with any follow-up questions.